Help! I Have No Employee Retirement Plan!

Are you screwed if you don’t have an employee sponsored retirement plan? Of course not!  However you are going to have to work a bit harder to piece together a comparable solution.

First of all can you get an IRA plan via another source? Certain states worried about not everyone having a company sponsored retirement plan have started their own plans that are available to all residents in that state.

Here is an example called Oregon Saves. It is a  Roth IRA plan into which you make post-tax contributions. These contributions are withheld from your paycheck just like a 401K. You can then withdraw the gains tax free later on when you retire

https://www.oregonsaves.com/

These states are known to offer state sponsored retirement plans for their residents

  • Oregon
  • California
  • Illinois
  • Connecticut
  • Maryland

Other states have limited plans (like for people that work for non-profits etc.) or are working on plans however these are the only ones in law now. These plans normally start off at 5% and offer automatic increases you can accept up to 10% of pay. This is good as you start small and then as you earn more you contribute more.

Can I also invest in other IRA options in addition to these? Yes, you can have your own traditional IRA plan and Roth IRA plan in addition to these. The same annual contribution limits do apply though.

What if I don’t live in one of these lucky states?

Well then you have to do it on your own or start hassling your state reps/governor to get a plan implemented. Here’s how. Your options basically boil into two categories.

Traditional IRA (pre-tax)

  • Contributions are made on a pre-tax basis like 401Ks
  • One pays the taxes upon withdrawing
  • There is an early withdrawl penalty of 10%
  • There are maximum contribution limits: $6000 in 2019 ($7000 if over 50)
  • You can read more about these at investment firm sites like Fidelity

Roth IRA (post tax)

  • A Roth IRA is a retirement account that is funded with post tax dollars instead of pre-tax dollars. It usually has limits of how much you can contribute per year. For 2019 it is $6000.
  • As the funds are paid for by post-tax dollar you are not taxed when you withdraw the money in your golden years.
  • The advantage to these is changes in tax rate. If you expect your tax rate to go up over time putting in when you rate is low and taking out when you rate is high would be the idea. That is you become richer.
  • Lots of financial firms offer these and will be happy to tell you all the gory details about early withdrawl fees, maximums etc.
    • Fidelity Investments is one such place

The key will be to do both if you can to hit the limits on both to save the most for retirement

  1. Traditional IRA $6000 pre-tax
  2. Then Roth IRA to $6000 post-tax
  3. Finally if you can invest on your own too

If you do both you should start to accumulate savings pretty fast. $6000/year is a nice start but you need to contribute more. Plan for 10% to 15% of your income. The sooner you start the better due to the power of compounding.

Don’t be too conservative on your investment choices. Go with a diversified stock fund if retirement is a ways off. Think large cap fund or SP 500 fund.

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